Carbon allowances – the cash equivalent of air pollution

Trading in carbon allowances is one of the mechanisms for reducing greenhouse gas emissions. This is basically a commodity exchange trade in surpluses of allowed carbon dioxide (CO2) emissions in the form of quotas. It is carried out entirely on market principles and the organised international licensed energy markets provide for an active trading in carbon credits on spot markets, as well as on futures and options markets.

The system of trading in harmful emissions has been developing in three stages - the first phase was between 2005 and 2007, the second one takes place currently and will last until 2012, and the third is expected to happen between 2013 and 2020.

The emission trading globally

According to data of the World Bank, the global carbon emissions market grew from $10 bn in 2005 to approximately $140 bn in 2009. The specialised company Point Carbon declared that the value of the global carbon market increased by 1% in 2010, reaching €92 bn. In 2010, the volume of the allowances traded globally reached the amount of 7 bn metric tons of CO2 – recording a 12% decline, compared to the previous year. However, the market still grew due to the higher carbon emissions prices.

The European Union Emission Trading System (EU-ETS)

The EU -ETS continues to play a major role on the global market for greenhouse gas emissions. It is compulsory for all 27 EU member-states, and it covers both small power plants and major energy companies. It accounts for about 12,000 industrial facilities and half of the greenhouse gas emissions in the EU. The scheme was introduced in 2005, but the first transactions were carried out before its real start.

In the past year, a total of 5.2 bn metric tons of CO2, at an average price of €13,99 per metric ton, were traded under this scheme.
During the second phase of the scheme, the European Community will be able to reduce the greenhouse emissions by merely 32 mln tonnes, or 0.3% of the total of 1.9 bn tons of CO2 discharged in the atmosphere by different plants and facilities. Unfortunately, the main problem is that the issued quantities of allowances for gas emissions increase, instead reversing the tendency.

Stricter market regulation

Due to the increased number of cases of fraud and manipulation of the EU- ETS, the European Commission announced that it will impose more stringent regulation on the market for greenhouse gas allowances. The aim is for the issuing of allowances for the harmful for the environment and men gas emissions to be limited and subjected to stricter control.

Where are we?

Bulgaria ratified the Kyoto Protocol on 17.07.2002, undertaking the commitment to reduce its greenhouse gas emissions by 8% in the period 2008-2012, compared to the basic year 1990.

In June 2010, the UN Committee in charge of the implementation of the Kyoto Protocol withdrew the accreditation of Bulgaria for trade in carbon emissions due to system problems related to our annual inventory of emissions, established in early 2009 by the Secretariat of the United Nation Framework Convention on Climate Change. After the transfer, allowances from our register to the registers of other EU countries were banned, internal trade intensified. According to data of the Executive Environment Agency Bulgaria, by January 18, 2011, Bulgarian companies traded with each other about 4 mln carbon emission quotas.

The accreditation of Bulgaria was restored in February 2011 and this made possible a deal for BGN 2.17 mln to be concluded a month later with Bulgarian participation. The Neochim JSC sold 70,000 tons carbon emissions on the European market in March this year. The quotas were bought by a financial intermediary firm, operating mainly in Central and Eastern Europe.

Local businesses have requested assistance from the European Commission for the sale of the CO2 quotas saved

With the return of Bulgaria on the international market of carbon allowances, the expectations for attracting fresh financial resource to the state budget recovered. The revenues from emissions were expected to be one of the major anti-crisis measures of the Government and were estimated at BGN 500 mln.

But these expectations proved to be too optimistic as the market is quite tight at present. Although Bulgaria has around 250 mln tonnes of carbon emissions saved, there are problems with their sale and market realisation. The reason is that, because of the crisis, the large polluting companies contracted their production activities and the demand for unused quotas of CO2 is low. Furthermore, buyers prefer to work with well-known players on this market, such as the Czech Republic and Poland which have already traded over 300 mln tonnes of carbon emissions. The Bulgarian Industrial Association urged the European Commission to facilitate the Bulgarian Government in the sale of the carbon allowances saved.

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